The road to scenarios leads through modeling and strategy
To complete the story, we need three elements to be able to manage our supply chain and our destiny:
- A model that is a somewhat faithful representation of your supply chain,
- Strategic questions
- Scenarios that contain critical components or impacts on the success of your company, the probability that this situation will occur, an early warning system for each scenario (so you know it is happening) and measures to be taken to avoid negative consequences
“The best way to predict the future is to create it.”
– Peter Drucker
Peter Drucker once said, “The best way to predict the future is to create it.” One of the best ways to create the future is through scenario planning. Scenario planning is a strategic management tool that helps organizations prepare for an uncertain future by exploring a range of possible futures and their potential impact on the organization. It involves creating and analyzing different scenarios that could happen and planning for each of them. This approach can help organizations make better decisions, reduce risk, and identify opportunities.
I recommend to my clients that they develop models that accurately depict their supply chains, so that they can make the best decisions based on the model. So, the supply chain model contains all the details, participants, resources, inputs, and outputs, as well as the relationships between them. It can react in the same way as the original, so it serves as a “sandbox” in which we can play with different scenarios.
Every manager has or should have their “monster in the closet” in the form of questions that are related to the fate of the company, and which cause them to lose sleep. Today, when we are witnessing various disruptions in the market, these questions are becoming more numerous.
Recent supply chain disruptions remind us that we need to be vigilant:
Questions that keep you up at night may include (but are not limited to):
- What if we lose our biggest customer or if we lose 30 or 50% of our revenue?
- What if the price of energy (electricity, gas, diesel) increases 3, 4, or 5 times?
- What if our goods, raw materials, or some key components are delayed for 3, 6, or 9 months or if our key supplier completely cancels our deliveries?
- What if our production line, which is responsible for a third or half of the capacity, breaks down?
- What if the cost of labor increases or if we cannot find new talent?
You will probabbly say:
- “It’s not easy to think about these issues while we’re constantly putting out small fires everywhere,” or…
- “I don’t want to think about those catastrophic scenarios that I can’t influence anyway.”
My answer to this: “First, you know very well that these are actually just excuses. Second, maybe this will be news to you but: You can influence these things!“
Differences between scenarios, forecasts, and visions:
SCENARIOS
- Possible, probable future based on uncertainty
- Illustration of risk
- Qualitative or quantitative
- We need to know what we are deciding
- Rarely used
- Strong in medium- to long-term perspectives with medium to high uncertainty
FORECASTS
- Probable futures based on certain relationships
- Hides risks
- Quantitative
- We need to dare to decide
- Used on a daily basis
- Strong in short-term perspective with low degree of uncertainty
VISIONS
- Desired future based on values
- Hides risks
- Usually qualitative
- Infuse with energy
- Relatively often used
- Function as triggers for voluntary change
Development of strategic options for each scenario includes identifying the most appropriate way of acting for the organization in each scenario and the implications for the organization’s strategy and operations. Strategic options should be flexible and adaptable and take into account potential trade-offs between different priorities and goals.
Goal of scenario planning:
In short, scenario planning is a valuable tool for organizations to prepare for an uncertain future. By identifying the driving forces of change, developing and analyzing different scenarios, and developing strategic options, organizations can make better decisions, reduce risk, and identify opportunities.
- Anticipation – Strategic conversation
- Making sense – Defining uncertain elements or researching the external environment as a whole
- Learning – Understanding the environment
- Optimal strategy – Testing current strategies in possible scenarios
Advantages of scenario planning over traditional planning:
Source: Scenario Planning by Mats Lindgren and Hans Bandhold